Want to invest in cryptocurrency? Consider this stock, which is up 545% in 2021
Cryptocurrencies have been one of the hottest trends in 2021 as they have made their way into the portfolios of individual investors. A study published by the University of Chicago in July 2021 reported that 13% of Americans surveyed had traded cryptocurrency in the previous 12 months, and while that’s less than the 24% of Americans who traded stocks over the same period, it still shows that crypto is being embraced by more than a small group of niche investors.
However, deciding which cryptocurrency to invest in can be extremely difficult, and exchange-traded funds (ETFs) that track cryptocurrencies can sometimes charge extremely high fees. For example, the Bitwise 10 Crypto Index Fund (OTC: BITW) charges an expense ratio of 2.5%, which means it takes $25 for every $1,000 invested each year. This is much higher than traditional stock ETFs like the Vanguard Total Stock Market ETFs (NYSEMKT: VTI)which has an expense ratio of only 0.03%.
If you want to avoid these high fees, but are not ready to invest directly in cryptocurrency, Coinbase Global ( CHANGE -6.90% ) might be a better alternative to dipping your toes in water. The company is the leading crypto-trading platform for individual investors and traders, as well as institutional investors. Additionally, the company’s earnings are well diversified, making it a smart way to invest in this growing industry. With its significant growth and impressive profitability, Coinbase could be the perfect crypto game for you.
Adoption is widespread
There are many competing platforms, but Coinbase is the main platform that serves day traders, long-term investors, and even institutional investors. In 2021, the company had 11.4 million monthly transactional users (MTUs) and a total user count of 89 million. Importantly, the company is gaining traction among institutional investors: its number of institutional investors jumped 50% year-over-year in 2021.
The company’s high number of users has led it to become one of the largest crypto platforms in the market in terms of assets on the platform. The company had $278 billion in assets at the end of 2021, nearly three times more than Robinhood Markets (NASDAQ: HOOD)which totaled $98 billion at the end of the year – and that includes all of its assets like stocks and options – showing just how dominant Coinbase is in the crypto industry.
It’s not just bitcoin
As an industry leader, Coinbase has benefited enormously from strong cryptocurrency price growth, driven by Bitcoin and Ethereum.
Coinbase has capitalized on this explosive growth, consistently posting jaw-dropping financial numbers over the past year. In 2021, Coinbase’s revenue skyrocketed 545% from 2020 to $7.36 billion. What is even more impressive is that the company was able to increase its profitability even faster. For the full year, its net income jumped 1,025% year-over-year to $3.6 billion, while its free cash flow – which was mostly revenue growth custodial fund – reached $10.7 billion over the same period.
What is critical about this revenue growth is that it is diversified across many different cryptocurrencies. The company only made 46% of its transaction revenue from Bitcoin and Ethereum activity in 2021, with the rest coming from other cryptos. This figure has decreased from 2020, when Bitcoin and Ethereum accounted for 56% of transaction revenue, and is significantly lower than other trading platforms.
Robinhood, for example, had 32% of its total income comes from a single cryptocurrency, Dogecoin, in the second quarter of 2021. A heavy reliance on single-coin trading activity can lead to revenue volatility and pose a risk to the business, similar to a high concentration of the customer base. Therefore, it is good to see Coinbase’s reliance on Ethereum and Bitcoin decreasing.
Why Coinbase Is My Favorite Crypto Pick
Coinbase thrives on trading volatility and price appreciation, both of which declined in the first quarter of 2022. This could cause MTUs to fall from 11.4 million in 2021 to 5 million in 2022. On the other hand , however, management believes MTUs have the potential to grow up to 15 million for the coming year, which shows how unpredictable the crypto space can be. In 2022, its average revenue per user transacting will likely drop to pre-2021 levels, meaning it could range from $34 to $55.
2022 could be a slower growth period for Coinbase, but in the long term, it is looking to expand its platform – as well as its lead over its competitors. The company is experimenting with a subscription service with access to commission-free trading and 24/7 customer support. Coinbase is also building a non-fungible token (NFT) platform and even working to allow users to build decentralized applications.
Coinbase is quickly becoming the one stop shop for all the services a person may need in the decentralized world. The shares are trading at just 13 times earnings – a steal for a company with the brand name and market leadership that Coinbase possesses. With that, its rapid growth, and aggressive investment in its future, Coinbase seems like a great way to invest in cryptocurrency.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.